ARTICLE
19 November 2014

A Q&A With Digital Media Investors Part II: Advice For Digital Media Companies

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Foley & Lardner

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Foley & Lardner LLP looks beyond the law to focus on the constantly evolving demands facing our clients and their industries. With over 1,100 lawyers in 24 offices across the United States, Mexico, Europe and Asia, Foley approaches client service by first understanding our clients’ priorities, objectives and challenges. We work hard to understand our clients’ issues and forge long-term relationships with them to help achieve successful outcomes and solve their legal issues through practical business advice and cutting-edge legal insight. Our clients view us as trusted business advisors because we understand that great legal service is only valuable if it is relevant, practical and beneficial to their businesses.
Since the paid subscription model is substantially dead, what is a successful revenue model for a digital media company?
United States Corporate/Commercial Law

As noted in Part I: Digital Media Funding Trends, Foley Partner Beth Felder gathered a group of digital media investor experts – Don Dodge, Developer Advocate for Google, James Geshwiler, Managing Director of CommonAngels and Eric Hjerpe, Partner at Kepha Partners – at our 2014 FOLEYTech Summit for a discussion on digital media investing. We've compiled their top insights below.

Since the paid subscription model is substantially dead, what is a successful revenue model for a digital media company?

Almost all digital media companies use a channel strategy for acquiring customers. The most successful find a channel partner willing to pay the digital media company to provide services to customers that the channel partner has already established and delivers. In the early stages sometimes digital media companies just have to find ways to drive revenue, even if they aren't pursuing directly their long-term strategy. Investors want to find companies that have a plan for revenue that offset investment dollars such that the company can self-sustain operating expenses and focus investment on expansion and growth.

How do investors evaluate the required users and their prospective "stickiness" when considering a post-seed investment?

The dilemma that many digital media companies face is that their sticky users aren't paying subscription fees and the company is faced with an unproven advertising revenue stream. Generally investors do not value users as an independent metric for evaluating potential investments, instead they want to see proven revenue streams and plans for sustained growth.

Is it better to get strategic (versus financial) investors early on as part of a seed syndicate?

It is always helpful to have a large strategic investor, both for the connections and resources they may be able to offer and the signaling to the market that your technology is credible. However, come time for an exit if the large strategic has not chosen to acquire you, especially given the access to information that strategic has as an investor, it can signal to the market that you have a problem and are damaged goods.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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